Roche Holdings blew the corporate market out of the water in 2009 with the largest bond issues ever in dollars, euros and Swiss francs, in spite of unprecedented European issuance volumes. In the process the company broke ranks with tradition by going straight to the bond market to pre-fund a hostile acquisition, bypassing bank lenders. Andrew Perrin and Timothy Sifert report.

Roche kicked-off the year in late February with a six-part US dollar trade for US$16bn, making history as the largest ever US dollar corporate trade, Rule 144a offering and Yankee bond – all in one. The jumbo transaction comprised fixed rate US$2.5bn three-year, US$2.75bn five-year, US$4.5bn 10-year and US$2.5bn 30-year notes, alongside a US$3bn one-year and a US$750m two-year, both in floating rate format.

The issuer and its banks had to tread carefully to place the jumbo deal in a market already beginning to show signs of strain. Sustained negative news-flow surrounding both the global macroeconomic picture and corporates themselves counted against the deal. Set against a backdrop of uninspiring Q1 earnings season, it had started to take the gloss of a reasonably bullish start to the year for corporate bonds.

Its efforts paid off. The well received transaction and positive secondary market performance paved the way for Roche to shrug off market difficulties and shatter further European records the following week with the largest corporate Eurobond ever at €12.66bn equivalent.

The multi-tranche dual-currency package helped to accommodate strong investor appetite for well rated non-cyclical companies with strong cash flows. It incorporated the largest single tranche issue ever, with the four-year fixed rate piece coming in at €5.25bn. The other euro issues comprised a €2.75bn seven-year and a €1.75bn 12-year in fixed-rate format, and a €1bn 12-month floating rate note. It also included a £1.25bn six-year offering – the largest ever single sterling tranche for a corporate issuer.

To seal its hat-trick of record breaking bond issues, a week later the healthcare company came with a dual-tranche SFr4bn offering. The domestic and foreign trade marked the largest deal ever placed in the Swiss market, comprising a SFr1.5bn domestic eight-year and a SFr2.5bn three-year international transaction.

Arguably it was not the size of these transactions that was most striking however, but the unusual strategy behind them: responding to the rising costs of traditional bank loans in an environment where banks had limited cash to lend, Roche sought the investment-grade bond market to pre-fund the hostile acquisition of Genentech – even before terms of the potential purchase had been finalised. Typically companies fund M&A deals with bridge loans and term out the borrowings by selling debt at or near the closing of an acquisition.

"It's rare that you see an issue around a hostile acquisition," said Robert LoBue, a managing director at JP Morgan, one of the joint bookrunners on the dollar trade. "They were very strategic in accessing a [bond] market that really opened up late last year and they didn't want to take a risk on the capital markets. I believe you get funding when you can, not when you have to."

Bond investors, however, do not usually take to acquisitions that are in limbo. Roche left nothing to chance, providing investors with the comfort of a coupon step-up clause that begins at ratings of A3/A. It included a sunset provision that has the interest rate adjustment expiring in July 2010 or 90 days after the acquisition closes.

The deal saw Roche transform many people's perceptions of what was feasible in the bond market. Since its completion, the group and Genentech have signed a merger agreement under which Roche will acquire the 44% of the former's shares it does not already own for US$95 per share, in a deal worth US$46.8bn. Having already raised around US$36bn equivalent in the bond markets, the bulk of the cash is expected to be made up of commercial paper, private placements, a traditional bank financing or cash flow already available from within the group.